Goldman’s flawed choice
The departure of Lloyd Blankfein from Goldman Sachs marks the end of an era. The financial crisis of a decade ago saw many of New York’s financial houses – Bear Stearns, Lehman and Merrill Lynch – crash and burn. But Goldman, with a little help from veteran investor Warren Buffett, weathered the firestorm.
It was a close-run thing and Goldman has had a torrid time.
The broker-dealer found itself on the wrong side of regulators when it created Abacus, a toxic instrument made up of rotten sub-prime mortgages, sold on to an unsuspecting Royal Bank of Scotland at a heavy cost to British taxpayers.
It is also blamed for fiddling Greece’s path into the euro area. And the group is presently the centre of a Justice Department probe into a multi-billion-dollar fundraising for scandal-tainted 1Malaysia Development Berhad (1MDB).
Closer to home, Goldman’s joint chief executive in London, Michael Sherwood, paid a heavy price for getting too close to his buddy Sir Philip Green by offering informal advice on the sale of BhS.
Anyone who can survive that lot and run the bank from his hospital bed when being treated for cancer deserves respect. Blankfein also steered the group away from extreme trading with its own balance sheet into safer territory of more conventional banking and wealth management.
But if the past should have taught the Goldman partners anything it is that it needs to strengthen its governance and improve on an unprincipled, bonus-driven culture.
One way for the £65bn bank to have done this would have been to split the roles of chairman and chief executive, allowing new boss David Solomon to run the enterprise as chief executive while drafting in an independent chairman in charge of culture and strategy.
Instead, Goldman has opted for the preferred American solution of vesting all power in one person.
That is too much responsibility and risk – as illustrated by the ethical lapses of the Blankfein era.
Film noir
MISSING a projection is always a big mistake. If you are Netflix, which has seen its share price climb 80pc since the start of the year, a setback hardly matters.
The real story is how the expansion of Netflix is scaring traditional media to death. After all, the streaming-video service did manage to add 5.2m net customers globally in the second quarter.
Anyone looking at the bottom line to judge Netflix is making a mistake. It has adopted the Amazon playbook, placing more value on investment than profit.
The £6bn or so it spent on producing TV shows and movies in the past year, and the cash burn of around half that, is irrelevant.
It is playing for bigger stakes. It rightly, for instance, has identified India as a target for subscribers and has come up with Indianproduced series Sacred Games, on the house of Cards and Narcos model.
The Netflix threat is driving the takeover battle by Disney and Comcast for Rupert Murdoch’s 21st Century Fox and Sky.
It is sobering to think that Disney, with its decades of ground-breaking productions, fantastic intellectual property and brilliant Pixar studios, now has a smaller market value than Netflix. Investors value new tech and growth above all else. The system is hugely weighted in favour of the disrupters. The Murdoch dynasty was forced to wait 18 months, because of political sensitivities, to get the permissions necessary to buy out its minority in Sky.
In the interim, Brian Roberts, of Comcast, was able to turn on the burners and Netflix cruised through the 100m subscriber barrier in the US.
The Comcast and Disney battle has yet to reach its finale, with a carve-up of assets likely. Comcast willing to settle for Sky and Disney much of the rest.
Neophyte Netflix’s huge production spend has lifted shows such as Stranger Things and GLOW into emmy nominations, breaking the grip of pay television.
It is becoming an unfair contest.
Facing East
ROLLS-ROYCe chief executive Warren east speaks for much of business when he talks of ‘frustration’ at the shenanigans in Westminster over Brexit.
At least he has the gumption to do something. Faced with 6ft 2in Donald Trump looming over him at Blenheim Palace last week, the modestly sized engineering boss advised the comb-over-in-chief to keep buying British. We need more like him.